WASHINGTON (AFP) - US Treasury Secretary Henry Paulson said Wednesday that more financial firms were expected to go bankrupt in the United States despite a massive government bailout plan approved last week. "One thing we must recognize - even with the new Treasury authorities, some financial institutions will fail," Paulson said at a news conference. Paulson stressed the 700-billion-dollar legislation approved by Congress Friday was designed to dampen financial market disruption when a bank fails. The new law "doesn't exist to save every financial institution for its own sake," he said. He called Wednesday for a special meeting of the Group of 20 advanced and emerging countries to discuss ways to combat the financial crisis. Meanwhile, leading central banks unleashed coordinated interest rate cuts on Wednesday in a bid to counter the global financial crisis amid dire warnings about the economic pain ahead. The International Monetary Fund warned of a "major downturn" for the global economy. On stock markets, panic-selling continued, with the Tokyo stock market suffering its worst day since the 1987 stock market crash and European markets losing another 5.0-6.0 per cent. Highly volatile trading in the United States resulted in large swings, but the market was slightly higher off its five-year lows in late afternoon trading as traders weighed up the interest rate cuts. The US Federal Reserve, the European Central Bank, Bank of England and central banks in Sweden and Switzerland all cut their rates by half a per centage point. China joined in cutting 27 basis points off its key rate. The central banks highlighted in a joint statement that they had cooperated in "unprecedented joint actions such as the provision of liquidity to reduce strains in financial markets" during the crisis. "It was a very good way to underline the concerns and the shared concerns. In that way, it helps," analyst Peter Kretzmer from Bank of America in New York told AFP. The rate cuts and a move by Britain to pump 87 billion dollars into its stricken banks were designed to underpin shaky confidence in the financial system after a wave of bankruptcies. Political leaders welcomed the interest rate cuts. "It is important and helpful that central banks are working in a coordinated way to deal with stress in the financial system," White House spokesman Tony Fratto said. German Chancellor Angela Merkel said it would "help build confidence" in the global economy and French President Nicolas Sarkozy, current EU president, called it a "very important decision." Neither the rate cut nor Britain's costly initiative to hold up the banking system could halt another market freefall in Europe and Asia. Panic selling hit Asian stock exchanges and a drop of 9.38 per cent in Tokyo prompted Japanese Prime Minister Taro Aso to voice "huge fears" for the future of the world's second biggest economy. Hong Kong fell 8.2 per cent and Sydney 5.0 per cent. While the initial impact of the central banks' move was to breathe some life back into the main European markets, the relief was only temporary. The London stock market plunged 5.38 per cent, with dealers saying investors were unconvinced that the rate cuts would stop the rot. Wall Street also remained volatile, rebounding from an opening plunge. The Dow Jones Industrial Average was trading 1.15 per cent higher at 9,555.35 in late trade, after initially plummeting 149.34 points. "The central banks have to cut their rates further ... we have lost too much time," Robert Halver, a strategist at Baader Bank in Frankfurt told AFP. Unveiling a package which will see Britain's eight main banks part-nationalized, Prime Minister Gordon Brown said "the global financial market has ceased to function" and needed "bold and far-reaching solutions." The government said it would use 50 billion pounds (64 billion euros, 87 billion dollars) to buy stakes in HSBC, Royal Bank of Scotland, Barclays, HBOS, Lloyds TSB, Standard Chartered, Abbey and Nationwide Building Society. It would also make available 200 billion pounds in short-term loans and issue 250 billion pounds to guarantee loans between banks. Royal Bank of Scotland and HBOS, whose shares have suffered heavy recent losses, said they would take part in the recapitalization part of the scheme but other banks including HSBC and Standard Chartered said they would not. It hoped the measures will overcome the banks' reluctance to lend to each other " the root of the financial crisis. In Iceland, the northern island nation worst hit by the financial crisis, central bank said it was abandoning efforts to shore up the national currency, which has collapsed in value. The government has since Tuesday nationalized two of the country's three biggest banks and Prime Minister Geir Haarde said the country's economic recovery would take years.